Fact: People of all ages contribute to the economy
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When economists construct their macro- and micro-economic models, they usually assume that productivity is something which decreases as we age. This is based on prejudices about age and productivity which are deeply engrained in our understanding of the economy. Time to challenge this stereotype, using scientific evidence.
In the idealised life course which economists and policymakers assume, a person becomes "productive" (in the sense of paid work) when they enter adulthood, some sooner, some later. They then “contribute” for around four decades – after which they turn from an active contributing member of society into a mere consumer for the rest of their life.
While many people look forward to retiring and kicking up their feet, many others find it insulting to be no longer perceived as valuable contributors. Recently, the entrepreneurial ambitions of people in later ages have been rising: according to the Kaufmann Foundation1, in recent decades, one-fifth of new US entrepreneurs were between 55 and 64 years old.
As demography shifts, assumptions about what a person can or cannot do at a certain age, are challenged. People today live longer, healthier lives. This increases the health span, meaning the amount of time we spend in good health through our lives. This is in itself very good news, because wellbeing is a value in itself. But the extended health span is of interest to science and policy also for a more specific reason: Some hope that if people over 60 are healthier, maybe they can participate in the labour market a bit longer. This re-entry into the workforce of traditionally inactive cohorts could give rise to a real new "demographic dividend”, capable of substantially increasing GDP, as many economists believe. The idea goes as follows: if today in Italy, 65-80-year-olds worked at least part-time, GDP could increase by 15% per year, other conditions being equal.
This is very good news for everyone who wants to keep working in their profession. However, there are a few problems with this thinking.
First problem: Some people who are healthy enough to work may have good reasons to want to stop. Spending time with family for example, travelling, hobbies, political engagement, education – all these things can take a back seat during “working age” and many will be looking forward to it. This of course, is healthy to society as a whole, but also to the individuals: education especially impacts the quality of life and work positively, and it is associated to higher life expectancy.
More potential than just consumption
Second problem: “Retired” people are already a pillar of the economy. This is often overlooked. Many older people volunteer in social work. They help out in the family business or assist with homework, take care of other older people or watch small children. This contribution saves everybody else time and money. Unfortunately, this added value by retired people is almost never part of economic calculations. What happens with social work, care work and the like when more and more people over 65 are asked to remain in their paid jobs?
To recognize our human potential past the age of 65 as more than just consumption, means to respect people of all ages. Part of the question, however, is to ask not only what the labour market needs right now, but to a certain extent: what would people like to contribute.
Nonetheless, the idea that we should overcoming the traditional retirement system is reasonable. The question is what this will look like. It is likely that the fixed retirement age will soon be replaced by a series of individual retirement tracks. People will have the option to alternate between periods of work with periods of rest, until gradually exiting the workforce. This will require profound changes in the private and the public sector. According to the IMF, it will be necessary to envisage transferring entire segments of the pension system to the market, should they become unsustainable for the state's finances. And finally, educational institutions will have to adapt to serve people of all ages, rather than only younger people.
In a recent paper born out of a collaboration between economists and health scientists, Andrew Scott, David Sinclair and Martin Ellison have calculated that targeting aging through increased health spans offers potentially larger economic gains than eradicating individual diseases. They compute that a slowdown in ageing that increases life expectancy by 1 year is worth US $38 trillion, and by 10 years, US $367 trillion.
Ultimately, the more progress that is made in improving how we age, the greater the value of further improvements.
Nicolò Cavalli, Assistant Professor for economic and social sciences at Bocconi University (with a focus on technological and demographic change)
Further reading related to this Myth Bust
1 You can read a summary of the report here: https://www.kauffman.org/entrepreneurship/reports/who-is-the-entrepreneur-united-states-1996-2021/
Photo: RDNE Stock Project/Pexels